Jul 2, 2010|
India has a housing bubble. Ask these people!
India's real estate companies and property agents claim that there is no housing bubble in India. But ask those aspiring to buy their first house and you will know whether a bubble exists or not! Please note that we are not talking here about the middle class in India. It is now rich enough to afford a small home in a big city. After all, this section of the population can borrow to buy a home.
But think about those whom bankers do not even consider fit enough to borrow. The taxi drivers, the housemaids, the office boys, junior executives, or even the workers who builds homes we live in! A housing bubble definitely exists for them in India's cities.
See this chart and you will know how.
We have assumed the following data in preparing this chart.
|Cost of a 1BHK home in far flung Mumbai suburbs = Rs 15 lac
||Monthly savings @ 50% of income
||Years to buy a 1BHK home of Rs 15 lac
assuming the entire 50% savings is used
So there you are. At his current monthly income, a construction worker can save and save for 50 years before he can even think of buying a 1BHK house in Mumbai. We have not assumed any increase in his monthly income just as we have not assumed any increase in the property's price.
Anyways, even if one assumes the case of some other city, and takes a 50% cut on the property price, the average construction worker will still need to add up savings for around 25 years before being able to afford a 1BHK house for his family!
See, we are not trying to prove that the housing bubble exists in entire India. But it definitely exists in places which are seeing mass inflows of poor immigrants. Mumbai is just one example. And 1BHK is the bare minimum that one can call a 'home' for a family of 4-5 people.
So, if real estate companies touting their grand plans for affordable homes tell you that there is no housing bubble in Mumbai or anywhere in India, you know what your views are. After all, you might be feeling the pinch too in your search for a 2BHK or a 3BHK property in an Indian city!
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